2 Sectors Left Behind In the Recent S&P Rally

Similar signals have occurred the last three summers

Senior Quantitative Analyst
Aug 22, 2018 at 7:19 AM
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The S&P 500 Index (SPX) just overtook the all-time high it reached in late January. However, the chart below shows that over the past couple of months, a growing number of stocks have been hitting new 52-week lows. This seems like a bad sign for the market, but time and time again, the numbers don’t always support these kinds of anecdotal conclusions. This week I’m going to look at prior instances to see how stocks performed going forward.

S&P 500 With Stocks New Lows

Index Near Highs & Stocks at Lows  

Using the current list of optionable stocks, I looked at prior times where the S&P 500 was in the top 90% of readings over the past year and at least 8% of stocks had made a new low over the past week. I went back to 2000, but the first signal was not until 2014; probably a result of survivorship bias, as the number of new lows going back a longer time is underreported because stocks at lows are less likely to be trading several years later than stocks at highs. This did, however, give me four other signals to work with, all of which occurred over the past five years.

The table below shows how the S&P 500 did after those four occurrences and then typical index returns since 2015 for comparison. It’s not wise to draw strong conclusions from four data points, but let’s at least look at the results. Interestingly, the signals came in each of the last four summers. The market has been strong after the last two signals, which occurred in June 2016 and June 2017. In both instances, the S&P 500 gained at least 7% over the next six months and double-digits over the next year. Stocks were weak after the two earliest signals, especially after the signal from July 2015.

S&P 500 Near Highs With Stock Lows

Sectors Hitting New Lows

Finally, I was curious where these stocks were coming from that were hitting new lows. The table below shows the number of stocks from specific sectors that have hit new lows over the past week. No one sector dominates the list, but the mining and pharmaceutical/biotech sectors have the most stocks that have hit their 52-week low over the past week

Stock Sectors 52-Week Lows

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